Summary
The Israel Tax Authority has published a new position (15/2025) that is shaking up the real estate industry: it requires developers who changed their project's designation (from sale to rental under the Encouragement Law) to repay previously deducted input tax, regardless of when the original deduction was made. This effectively nullifies the 5-year statute of limitations prescribed by law, opening the door to massive retroactive payment demands.
This article exposes the legal absurdity of this position: the law explicitly provides that reporting corrections may only be made by way of an "amended return" (which is subject to the statute of limitations), while the Authority has invented a mechanism that "circumvents the law" by requiring reporting in a current return. The author highlights the Authority's unfairness in applying this policy unilaterally only when it suits its purposes (for collection), while refusing to allow developers seeking belated refunds to do the same.
The legal analysis draws on prior case law and emphasizes that this entire issue is pending in appeals currently being litigated by our firm's managing partner. The message to developers: do not rush to pay demands based on this position without thorough legal examination, as it stands on shaky legal ground.
